Professional Documents
Culture Documents
Hamilton Stubbs, Jr., STUBBS & PERDUE, P.A., New Bern, North
Carolina, for Appellees. ON BRIEF: Warren W. Davis, SANDBERG, PHOENIX & VON GONTARD, St. Louis, Missouri, for
Appellant.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
The plaintiffs, closely held corporations (called Delcos) that operate Pizza Hut delivery and carryout stores, were granted a summary
judgment determining (1) that they (the Delcos) were not required,
under principles of estoppel, to redeem the shares of a deceased onethird owner and (2) that judicial dissolution of the Delcos would not
be appropriate. The defendant, who is the administratrix of the
deceased owner's estate, appeals, and we affirm.
I.
This case involves what should be done with stock, in closely held
corporations, that was previously owned by Philip Woodward, the
defendant's deceased husband. For years, Woodward and his two
business partners, Keith Thomas and Bernard Butler, each held an
equal, one-third share in the Delcos. In addition to the Delcos, the
three partners also owned a number of sit-down, or"red roof," Pizza
Hut restaurants. When Thomas died in 1995, Butler bought his shares.
Thus, this case involves the Delcos, now managed by Butler (the sole
remaining partner), and Mrs. Woodward, who represents the interest
of her husband's estate in the Delco stock.
This is not the first lawsuit involving Butler and Mrs. Woodward.
The disposition of Mr. Woodward's stock in the Pizza Hut ventures
has been the focus of litigation for several years. In fact, in the settle2
ment of one case, which involved the "red roof" restaurant operations,
the estate received approximately $4 million for Mr. Woodward's
shares. The disposition of Woodward's stock in the Delcos remains
to be resolved, however. Mrs. Woodward has said that she wants to
sell, and the Delcos at one time wanted to buy, the Woodward shares.
The parties could not agree on a price, however, and differed on
whether the shares were subject to a Stock Redemption Agreement
(SRA) the partners had developed in 1980. Specifically, as to the
SRA the dispute centered on whether the SRA would dictate the price
and terms of any purchase of stock by the Delcos from the Woodward
estate.
In an effort to resolve the matter, the Delcos filed suit in the Eastern District of North Carolina against Mrs. Woodward, as executrix.
The Delcos sought a declaration that the Woodward stock was subject
to redemption under the SRA and requested an order compelling arbitration on valuation. In a counterclaim Mrs. Woodward sought,
among other things, a declaratory judgment that the SRA did not
apply to the estate's stock, a determination that judicial dissolution
was appropriate, compensatory and punitive damages, and an
accounting. Notwithstanding her desire to get out of the pizza business, Mrs. Woodward alleged that Butler had tried to shut her out of
the Delcos' affairs, that he had denied her financial information, and
that he was misusing Delco assets.
In August 1995, several weeks before the scheduled trial date in
this case, the Delcos issued additional stock. Butler purchased a number of these shares. Mrs. Woodward (on behalf of the estate), however, declined to buy additional stock, believing that she "should sell
the Delco stock and . . . should not become more involved." As a
result, the estate's ownership proportion declined considerably. At
approximately the same time, the Delcos changed their position in the
lawsuit, arguing that the companies were under no obligation to
redeem the Woodward stock under the SRA. Following the Delcos'
shift in position, Mrs. Woodward filed an additional counterclaim,
charging that the doctrine of equitable estoppel precluded the Delcos
from changing their position.
When the dispute intensified, the district court appointed a magistrate judge as special master to consider the question of valuation and
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the myriad of issues that were fully presented both during the [special
master's] trial and since." Despite this praise for the special master's
work, the district court was careful to note that it had "conducted an
independent and exacting review of [the master's] recommendations."
The court was thus careful to note that it had made its own independent judgment, both "as a matter of law, and in its discretion." After
reviewing the district court's summary judgment order, we are convinced that the court conducted the required de novo review of the
special master's proposed legal conclusions. See Stauble v. Warrob,
Inc., 977 F.2d 690, 697 (1st Cir. 1992).
Mrs. Woodward further contends that the district court was indirectly influenced by the special master's proposed finding that the
estate's shares were worthless. She insists that the district court did
not "realize the relationship between the master's analysis and the
other issues in this case." Specifically, she claims that the special
master paid scant attention to the legal issues once he had decided that
the shares were worthless. Again, our review of the district court's
order leads us to conclude that the master's recommendation on valuation did not sway the district court from exercising judgment that
was fully independent. Indeed, the district court emphasized that the
special master's recommendation on valuation was irrelevant to the
court's summary judgment determination.
III.
Mrs. Woodward next argues that the district court erred in granting
summary judgment on the issues of equitable estoppel and judicial
dissolution. We review a district court's award of summary judgment
de novo. See Nielsen v. Gaertner, 96 F.3d 110, 112 (4th Cir. 1996).
Summary judgment is appropriate "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter
of law." Fed. R. Civ. P. 56(c).
A.
Mrs. Woodward asserts that the doctrine of equitable estoppel bars
the Delcos from refusing to redeem her deceased husband's shares.
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On appeal she says that the district court was wrong to conclude on
summary judgment that she "has shown no entitlement to . . . equitable estoppel."
Mrs. Woodward must establish three elements for a claim of estoppel: intentional misrepresentation (or culpable negligence), reasonable
reliance, and detriment. See Deal v. North Carolina State Univ., 442
S.E.2d 360, 362 (N.C. App. 1994). Mrs. Woodward alleges that the
Delcos intentionally misrepresented several material facts that she
relied on to the detriment of the estate. She charges that the Delcos
misrepresented that the SRA applied to the estate's shares, that Pizza
Hut would not allow her to sell the shares to anyone but Butler, and
that the Delcos were not worth much money. All of these misrepresentations, Mrs. Woodward says, prevented her from selling the
shares, which have declined in value since this suit was filed. We conclude that Mrs. Woodward's equitable estoppel argument is without
merit. Even assuming that the Delcos made the alleged misrepresentations, the undisputed record and controlling case law make clear that
Mrs. Woodward did not reasonably rely on any misrepresentations.
Mrs. Woodward first contends that she relied on the Delcos' assertion that the SRA applied to the estate's holdings. Whether the SRA
covers the estate's stock, however, is a legal question. A party is not
entitled to rely on an opposing party's statements of law. Tenneco
Chemicals, Inc. v. William T. Burnett & Co., 691 F.2d 658, 665 (4th
Cir. 1982). Thus, although the record may indicate that several
months before the suit someone (perhaps in Butler's accounting firm)
thought that the SRA did not cover the Delcos, that fact is of no consequence to the question of reliance. In any case, Mrs. Woodward did
not rely on the Delcos' position: she contended from the start that the
SRA did not apply to the estate's shares.
In a twist on the same argument, Mrs. Woodward argues that she
relied on the Delcos' initial indication of interest in buying the shares.
To succeed on this claim, however, Mrs. Woodward must show that
the Delcos intentionally or negligently misrepresented their initial
interest. Mrs. Woodward has proffered no evidence that any initial
indication of interest was intentionally or negligently misrepresented.
Mrs. Woodward next contends that she relied on the Delcos' assertion that Pizza Hut would not allow franchise splitting (that is, Pizza
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be squandered, and that the estate would be able to obtain a fair value
for her deceased husband's stock. All of these reasonable expectations, she contends, were frustrated by no fault of her own. She says,
therefore, that she is entitled to the remedy of judicial dissolution.
Mrs. Woodward's reasonable expectations cannot be judged in a
vacuum. Instead, we must evaluate what she reasonably could have
expected in light of her relationship with the Delcos (or Mr. Butler)
and her stated desire to get out of the pizza business. First, Mrs.
Woodward has testified that the estate did not want to remain a Delco
shareholder, that she did not want to be an officer or director of the
Delcos, and that the estate did not want to purchase any additional
stock. In other words, for the most part, Mrs. Woodward (as executrix) had no expectation of obtaining the things she now wants. Second, the Delcos had never issued dividends* or held formal annual
stockholder meetings prior to Mr. Woodward's death. In fact, following Mr. Woodward's death, the Delcos held formal meetings to
enable Mrs. Woodward to participate. Third, it appears that the Delcos have not frustrated Mrs. Woodward's expectation of receiving fair
value for her husband's shares. The estate's expert testified that the
shares could be sold to a third party for approximately $500,000 "relatively eas[ily]," and Mrs. Woodward has not shown that that option
is no longer available to her. Finally, Mrs. Woodward's assertions
that the Delcos misused assets or squandered corporate opportunities
are not of sufficient gravity to render judicial dissolution an appropri_________________________________________________________________
*Under North Carolina law the Delcos were unable to issue distributions during the years in question because their financial condition was
so weak. North Carolina law provides:
No distribution may be made if, after giving it effect:
(1) The corporation would not be able to pay its debts as they
become due in the usual course of business; or
(2) The corporation's total assets would be less than the sum
of its total liabilities plus . . . the amount that would be needed,
if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving
the distribution.
N.C. Gen. Stat. 55-6-40(c) (1997).
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